Austrian Economics: A brief background

I was surprised to see “Austrians” trending on based on Ron Paul’s statement last night “We’re all Austrians now!”

People seemed to think he was talking about the country…

In economic theory, the term Austrian School stands for liberalism and laissez-faire-economics (where economic performance is optimised when there is limited government interference).

The Austrian School of economics has its original roots in the work of Carl Menger from the University of Vienna . References to the topic were first published in 1871. Well-known followers of Menger included Eugen von Böhm-Bawerk (1851 – 1914), Ludwig von Mises (1881 – 1973) and, perhaps most important, Friedrich A. Hayek (1899 – 1929).

Hayek, for example, strongly rejected any intervention by the state in the economy. For him, markets work perfectly in the sense that the market price balances supply and demand.  A perfect market is one characterised by easy access to information, no barriers to entry and with prices controlled by all participants.

Due to the global financial crisis of 2007 and 2008, the popularity of the Austrian School of economics has experienced a boost in recent times because it had predicted, a long time ago, that too much debt – due to too low interest rates – would trigger investment bubbles followed by a crisis after these bubbles burst.  For example, look at Ireland’s property bubble, which was fuelled by reckless lending by banks to property developers.

Here’s a rap video about some aspects of the Austrian school made by my friends at EconStories!

In Fear the Boom and Bust, John Maynard Keynes and F. A. Hayek, two of the great economists of the 20th century, come back to life to attend an economics conference on the economic crisis. Before the conference begins, and at the insistence of Lord Keynes, they go out for a night on the town and sing about why there’s a “boom and bust” cycle in modern economies and good reason to fear it.

 

Tom Woods sums up quite nicely a bit about Austrian Economics here:

An Introduction to Economic Reasoning
These books, all relatively short and available online or for purchase, are an excellent starting point for an education in sound economics.

**Economics in One Lesson by Henry Hazlitt; online here and here (.pdf)
Essentials of Economics by Faustino Ballve; online here (.pdf)
An Introduction to Austrian Economics by Thomas C. Taylor; online here and here (.pdf)
Lessons for the Young Economist (for younger readers) by Robert P. Murphy; online here,here (.pdf) and here (ebook)

Another easy-to-understand introduction to economic reasoning is Peter Schiff’s book How an Economy Grows and Why It Crashes.

A useful companion to Hazlitt’s Economics in One Lesson is this series of videos, recorded in July-August 2008, in which various professors comment on each of the book’s chapters – explaining the argument, elaborating on it, and applying it to present conditions.

For more background check out this link!

The Austrian School

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